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Bulls Continue To Push Stocks Higher As Risk Rises 01-22-21

Summary:
Portfolio Positioning – A Correction Is Coming As noted, a correction is coming. Let me clarify. I am NOT saying the markets are about to crash.  However, after the recent runup from November, all of our indicators are beginning to align. Such suggests a 3-7% correction over the next month. Could it be 10% or more? Absolutely. Once the correction begins, we can garner a better understanding of the downside risk. Over the past year, we have remained primarily allocated toward equity exposure but have also worked around the edges hedging risk, raising stop levels, and staying mostly domestic-focused. Given our outlook for a steeper yield curve earlier this year, we also shortened the duration of our bond allocations and increased credit quality. On Friday, we did increase our cash levels

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Bulls Continue To Push Stocks Higher As Risk Rises 01-22-21

Portfolio Positioning – A Correction Is Coming

As noted, a correction is coming.

Let me clarify. I am NOT saying the markets are about to crash. 

However, after the recent runup from November, all of our indicators are beginning to align. Such suggests a 3-7% correction over the next month. Could it be 10% or more? Absolutely. Once the correction begins, we can garner a better understanding of the downside risk.

Over the past year, we have remained primarily allocated toward equity exposure but have also worked around the edges hedging risk, raising stop levels, and staying mostly domestic-focused. Given our outlook for a steeper yield curve earlier this year, we also shortened the duration of our bond allocations and increased credit quality.

On Friday, we did increase our cash levels and reduce our equity-index longs for the time being. We may be a bit early, but we feel the risk currently outweighs the reward. These portfolio adjustments to allocations follow our time-tested portfolio management rules.

  1. Tighten up stop-loss levels to current support levels for each position.
  2. Hedge portfolios against major market declines.
  3. Take profits in positions that have been big winners
  4. Sell laggards and losers
  5. Raise cash and rebalance portfolios to target weightings.

Notice, nothing in there says, “sell everything and go to cash.”

Our Job As Investors

Remember, our job as investors is pretty simple – protect our investment capital from short-term destruction so that we can play the long-term investment game.

  • Capital preservation
  • A rate of return sufficient to keep pace with the rate of inflation.
  • Expectations based on realistic objectives.  (The market does not compound at 8%, 6% or 4%)
  • Higher rates of return require an exponential increase in the underlying risk profile.  This tends to not work out well.
  • You can replace lost capital – but you can’t replace lost time.  Time is a precious commodity that you cannot afford to waste.
  • Portfolios are time-frame specific. If you have a 5-years to retirement but build a portfolio with a 20-year time horizon (taking on more risk) the results will likely be disastrous.

With forward returns likely to be lower and more volatile than witnessed over the last decade, the need for a more conservative approach is rising. Controlling risk, reducing emotional investment mistakes, and limiting investment capital’s destruction will likely be the real formula for investment success in the coming decade.

Bulls Continue To Push Stocks Higher As Risk Rises 01-22-21


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Bulls Continue To Push Stocks Higher As Risk Rises 01-22-21

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By Lance Roberts, CIO


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Bulls Continue To Push Stocks Higher As Risk Rises 01-22-21


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Bulls Continue To Push Stocks Higher As Risk Rises 01-22-21

Bulls Continue To Push Stocks Higher As Risk Rises 01-22-21

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Bulls Continue To Push Stocks Higher As Risk Rises 01-22-21


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Bulls Continue To Push Stocks Higher As Risk Rises 01-22-21


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Bulls Continue To Push Stocks Higher As Risk Rises 01-22-21

Lance Roberts
Lance Roberts has sharpened that lens with 30 years in the investing world from private banking and investment management to private and venture capital. Lance Roberts’ perspective and common sense analysis is sought after by media outlets such as Fox 26 News in Houston, CNBC, CNN and Fox Business News along with numerous publications including the Wall Street Journal, USA Today, Reuters and the Washington Post. Roberts is the Editor of the X-Factor report and publishes the blog Daily X-change.

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